Decisions on interest rates are expected next week both here at home and in the United States. We wouldn't be surprised if Norges Bank said there would be no rate cut until next year, currency strategist says.
What Norges Bank says and does is one thing, but what they do compared to the US central bank is another thing, says currency strategist Dane Cekov at Nordea Markets to E24.
On Wednesday, we will receive the interest rate decision from the US central bank, while central bank governor Ida Wolden-Basch and the rest of the Norwegian bank will follow the next day.
It is widely expected that no one will settle for anything other than no change in interest rates, but markets are waiting patiently Signs Central bankers will come in to show the way forward.
– If the Fed signals three rate cuts this year, and Norges Bank reiterates that rate cuts can take some time, we may get a slightly stronger krone before the Easter holiday, but not much stronger, says Sikov.
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Doubts about an imminent cut in interest rates
Wolden Bache said at the last two meetings that the interest rate will remain at the current level for some time to come. The Bank of Norway has also indicated it will cut interest rates this year, but not before the fall.
– For the Fed, the question is how many rate cuts they are signaling, while for Norges Bank, everyone is wondering how long it will be before there is a rate cut, and it probably won't be before the end of the year. “, says the economist at Nordea Markets.
Sikov points out that the krone exchange rate, which is measured by the so-called I-44 import-weighted exchange rate index, has been somewhat stronger since December than the Norwegian Bank assumed.
– About 2.5 percent stronger. The currency is still weak, but the krone's development has been better than Norges Bank had envisioned. The currency expert says one reason for this is the increase in interest rates in December.
He says there is still reason to be concerned about the krone exchange rate, because it could quickly weaken again.
– Norges Bank knows this too, so I think they will therefore indicate that interest rates will be high for some time, and we at Nordea Markets believe that the new interest rate path will be similar to the old one. “We wouldn't be surprised if they said there would be no interest rate cuts before the end of the year,” Sikoff says.
New Japanese signals
On Tuesday, the Bank of Japan, one of the most important central banks in the world, will hold an interest rate meeting.
– I don't think they will increase next week, but I think they will announce that they will do so at the next meeting in April. Japan is important because it is the last country with negative interest rates. The interest rate is negative 0.1 percent, Sikov says.
The level of Japan's interest rate has implications for long-term global interest rates: if the interest rate there starts to rise, Japanese investors will have a greater incentive to invest money at home and not buy US and foreign government bonds.
– When interest rates become higher in Japan, it means higher long-term interest rates, says the currency strategist.
The central banks of Great Britain and Australia will also hold interest rate meetings next week.
The Fed could overwhelm Norges Bank
Fed Chairman Jerome Powell and the rest of the interest rate committee will present the interest rate path on Wednesday. The previous measure led to three interest rate cuts this year.
Since the Fed's forecast in December, many key numbers about the US economy have pointed to continued high activity. In February, more non-agricultural jobs were created than expected, and price inflation rose slightly.
I wouldn't be surprised if the Fed said on Wednesday that it no longer envisages three rate cuts, but two. It is therefore difficult, no matter what Norges Bank says, to make the krone exchange rate stronger.
– The Fed will overshadow that if they remove a rate cut from expectations, and that will overshadow the Norges Bank rate meeting, says Sikov.
Passionate about salary requirements
On Monday, the frontline settlement begins with the union presenting its demands to Norsk Industry. Salary adjustment is also very important to Norges Bank's interest rate outlook.
– Employee organizations have good cards: the economy is in good shape, and profitability in the industry is good – thanks in large part to the weak krone exchange rate, says Sikov.
During 2023, the weak krone exchange rate was a headache for many: price inflation increased, summer holidays became more expensive, and interest rates peaked.
This year, the weak krone led to increased profitability in the export-oriented sector. The front-end career depends on it, so this year we get a band-aid on the wound: higher wage growth given price growth, says Sikoff.
Last year, the frontline adjustment resulted in real wages growth of 0.3 per cent, given the wage framework was 5.2 per cent and expectations of a price increase of 4.9 per cent.
This year, real wage growth requirements will likely be higher so that employees can get their share of the pie.
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